Philosophy

If I’m asking you to become a member, it’s only right that you know something about me and the thoughts that guide my teaching and trading philosophy.

Some instructors talk about how much money can be made with options, but never suggest the possibility of losing money. Let me assure you losing money is a real and common occurrence. The majority of people who attempt to trade for a living fail to make any money. Amazingly, they never show a profit. The same principle remains for all traders: many fail.

If you are an individual investor with realistic profit expectations, you can succeed. My job is to make that learning process easier and smoother. However, I cannot guarantee that any individual trader will achieve his/her desired results.

Everyone understands that a great deal of training is required to become a doctor or lawyer. Yet, trading is thought to be different.

Almost every beginner believes it’s easy to trade and earn big bucks.
It’s not easy, unless you happen to buy stocks just before a major rally, and remember to sell before the bubble bursts.

Eli Manning

I’d like Eli Manning’s job, but I am not qualified. Yet many believe that career path to becoming a trader/investor is simple. After all, don’t the TV ads of certain stockbrokers tell us that they provide ‘research’ so we can pick the best stocks? It’s nonsense. Professional money managers can’t pick winning stocks on a consistent basis, so why should any of us be able to use the broker’s ‘research’ to suddenly become a skilled stock picker?

The good news is that you can become successful traders. And it’s not necessary to be one of the best. In professional sports, only the best of the best make it. As a trader, all you have to do is be ‘good enough.’

Personality is part of the equation

I understand how anxious you are to get started with real trading, but if you take the extra time to understand what you are learning, you will fare much batter.

Certain traits are necessary to be a winner: the willingness to learn, the ability to control emotions (especially greed and fear), and the ability to recognize when you have too much at risk.

Believe that managing risk is an essential skill. Believe that it is never too early in your trading career to recognize the importance of risk management. If you delay that part of your education until you are an experienced trader, there is a good chance that you will never get to be that experienced trader.

Traders play in the world of statistics. Unexpected events occur and you must never bet the ranch that such an event will not happen.

I tell the story of options trading as I see it:

  • Trading options offers the possibility of earning substantial money
  • All option strategies involve risk
  • Early success leads to overconfidence. Overconfidence is a killer
  • If you seek larger rewards, just know that it comes with greater risk

My basic philosophy

  • Know the potential reward (profit target) for a trade. Know the maximum loss. Be certain that seeking the reward potential for each trade is worth the risk
  • When profits are limited, cut risk and let someone else collect the last few pennies
  • Define your own comfort zone. Don’t adopt that of another person
  • Trade within that zone – especially as a new trader
  • Greed is not good
  • Confidence is necessary for success. Overconfidence may result in blowing up your account
  • Always know how much money is at risk
  • Do not seek tiny rewards, despite the high probability of success.

Education

Definition: An activity that imparts knowledge or skill.

If you require instant gratification; if you plan to take one short course and immediately become a profitable trader; I’m not the right teacher for you.

I believe that you must understand how options work. Then understand the specific strategy you plan to use. Know what must happen in the marketplace for the strategy to earn a profit (or suffer a loss). It astounds me that beginners make a trade and then have no idea what to do next. Entry is merely the first step in a longer process.

It’s not that complicated. I offer this advice: being in a hurry and taking shortcuts is ill-advised. Learn now. Trade later. We’ll talk about trades from entry through exit and learn from experience.

Details

Details are important. I expect you to come away from a lesson with something of value; something you can use when trading options or managing a position. 

Traders accumulate insight, tidbits of information, and experience over the years. It does not come all at once. To help with the process, I occasionally offer a discussion on a topic that feels more advanced than it is. The goal is to help YOU recognize principles that enhance your trading. One example is how two seemingly different option positions are equivalent [each earns the same profit or loss]. That’s truly an eye-opening experience when you first recognize this simple, but not obvious fact.

The first rule of trading is simple: Don’t go broke. It seems obvious, but is often ignored until it’s too late. You will learn to minimize the chances of blowing up an account. It’s not as simple as: “Don’t take a lot of risk in one trade.” Some traders lose their accounts gradually and end up just as broke as the person who blew up over a single trade.

Trading is a business that punishes mistakes. We learn from our mistakes, but that’s true ONLY when the mistake is recognized. If you act on a misconception, then mistakes are repeated. My job is to eliminate those misconceptions.

So what do I mean by that introductory statement – to teach something you don’t already know? Here are examples that appear frequently in my writings:

* Explaining something from a different perspective

* Including extra details, because they may provide clarification

* Information to answer questions before they are asked

* Explaining why I believe something is true

* A trading philosophy based on common sense, and not on traditional rules

* Being willing to take a minority stance – but telling you when most others have a different point of view

* Encouraging you to think for yourself

* Minimizing the risk of ruin

* Stressing the importance of risk management

* Explaining that choosing a good trading strategy is just the beginning

* Why trading near-term (Weeklys) options is more dangerous that it seems

* Why it’s easier (easier is not a guarantee of profits) to make money selling, not buying, option premium

* Why selling naked short options is too risky for most traders (unless you sell puts with the intention of owning stock)

* Sharing the opinion of other bloggers

I encourage education and practicing (paper trading) before using real money.

As with any occupation or hobby, developing skills takes time. When you have confidence in your decisions, it becomes possible to pull the trigger, make trades and accept losses. Refusing to accept losses is the quick path to failure

Each trader has an individual personality and investing objectives. I do not adhere to strict rules because that cannot be suitable for every type of trader.

That’s a capsulized portion of my beliefs. Our plan is to guide you toward making your own, good trade decisions, solving problems, choosing intelligent trades, and managing risk with skill. If those are not your goals, we will be on divergent paths.

Welcome to Options for Rookies Premium.

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